National Credit Union Administration Board v. Deutsche Bank National Trust Co.
Filing
171
OPINION AND ORDER re: 134 MOTION to Strike Document No. 132 Parts I-III. filed by Graeme W. Bush, National Credit Union Administration Board, 120 MOTION to Stay Plaintiffs' indemnification-related claims and all r elated discovery. filed by Deutsche Bank National Trust Co., 112 MOTION for Leave to File Second Amended Complaint and Substitute the Separate Trustee as Plaintiff for the NGN Claims. filed by Graeme W. Bush, National Credit Un ion Administration Board, 117 MOTION to Dismiss [Proposed] Second Amended Complaint. filed by Deutsche Bank National Trust Co.. For the reasons set forth above, NCUA's motion for leave to file a Proposed Second Amended Complaint and to substitute the Separate Trustee as a plaintiff (Doc. 112) is GRANTED; (2) Deutsche Bank's motion to dismiss (Doc. 117) is GRANTED in part and DENIED in part; (3) Deutsche Bank's motion to stay NCUA's indemnification claims (Doc. 120) is GRANTED; and (4) NCUA's motion to strike certain portions of Deutsche Bank's reply memorandum of law (Doc. 134) is DENIED. NCUA shall file its Second Amended Complaint on or before October 21, 2019. SO ORDERED. (Amended Pleadings due by 10/21/2019.) (Signed by Judge Sidney H. Stein on 10/15/2019) (kv)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
NATIONAL CREDIT UNION
ADMINISTRATION BOARD, ET AL.,
14-cv-8919 (SHS)
Plaintiffs,
OPINION & ORDER
-againstDEUTSCHE BANK NATIONAL TRUST
COMPANY,
Defendant.
SIDNEY H. STEIN, U.S. District Judge.
Before the Court is (1) a motion from plaintiff National Credit Union
Administration Board ("NCUA") for leave to file a Proposed Second Amended
Complaint ("PSAC") and to substitute a Separate Trustee as plaintiff pursuant to Rules
15 and 17 of the Federal Rules of Civil Procedure; (2) a motion to dismiss the PSAC from
defendant Deutsche Bank National Trust Company ("Deutsche Bank") pursuant to Rule
12 of the Federal Rules of Civil Procedure; (3) Deutsche Bank's motion to stay plaintiff's
claims related to indemnification; and (4) NCUA's motion to strike certain portions of
Deutsche Bank's reply memorandum of law.
These motions followed a Court-imposed 2-day stay where the Court dismissed
defendant's then-pending motion to dismiss plaintiff's amended complaint without
prejudice in anticipation of a decision from the United States Court of Appeals for the
Second Circuit in National Credit Union Admin. Bd. v. U.S. Bank Nat'l Ass'n, No. 17-756. As
discussed further below, this case was set to, and did, clarify some of the outstanding
issues with plaintiff's standing.
For the reasons set forth below, plaintiff's motion for leave to amend and to
substitute is granted; defendant's motion to dismiss is granted in part and denied in part;
defendant's motion to stay plaintiff's indemnification claims is granted; and plaintiff's
motion to strike is denied.
1
Table of Contents
I. BACKGROUND ......... .......... ................................ ............................ .. .............................. ... 3
A.
Factual Background ............ .............................. .................................... ........................ 3
B.
Procedural History .......................................................................................... .. ........... 5
OVERVIEW .......... ..................... ....................................... .................................................... 8
II.
III.
DISCUSSION ....................... ................................ ... ......................................................... 8
A.
Plaintiff's Motion for Leave to Amend the First Amended Complaint and
Substitute a Separate Trustee is Granted . ................. ......................................................... 8
1.
Legal Standard ......... .................................................................................................. 8
2.
NCUA's Proposed Amendment and Substitution is Timely and There Has
Been No Undue Delay .......... ................................... ....................................................... ...... 9
3.
NCUA's Proposed Amendment and Substitution is Not Too Broad in Scope.
11
4.
NCUA May Substitute Itself as Plaintiff for the "Unwound" Certificates ... 14
Deutsche Bank Does Not Have Standing to Challenge the Separate Trustee
Agreement................................. ... ................... .............................. ......... .... .... ...................... 15
5.
6.
The Separate Trustee Benefits From NCUA's Extender Statute .... ................... 17
7.
Conclusion .. ................ ............ ........... ... ...... ............. ............. .. .. ............ ........... ......... 17
B.
Defendant's Motion to Dismiss the Proposed Second Amended Complaint is
Granted in Part and Denied in Part................................................................................... 18
1.
Legal Standard ... ...................................................................................................... 18
2.
Deutsche Bank's Motion to Dismiss NCUA' s Breach of Contract Claims is
Denied ...... .. ................................. ... ...................... ........ .... ... .. .... .. .. ... ........ .......... ................. . 18
3.
Deutsche Bank's Motion to Dismiss NCUA's Tort Claims is Granted . ......... 25
4.
Deutsche Bank's Motion to Dismiss NCUA' s Indemnification Claims is
Denied . ........................... .......... ...... ........ ...... .. .................. ...... ............................ .................. 28
C.
Defendant's Motion to Stay NCUA's Indemnification Claims is Granted .... 31
D.
Plaintiff's Motion to Strike is Denied .................................................................... 32
IV.
CONCLUSION ........................................................... .................................................... 33
2
I.
A.
BACKGROUND
Factual Background 1
NCUA is an independent federal agency in the executive branch that regulates
federal credit unions pursuant to the Federal Credit Union Act, 12 U.S.C. § 1751 et seq.
One of NCUA' s powers is to place failed credit unions into liquidation. Id. § 1787. Upon
liquidation, NCUA succeeds to "all rights, titles, powers, and privileges of the credit
union, and of any member, accountholder, officer, or director of such credit union with
respect to the credit union and the assets of the credit union." Id. § 1787(b)(2)(A)(i).
According to NCUA, in 2009 and 2010, in the aftermath of the financial crisis, it placed
several failed corporate credit unions into liquidation and thus succeeded those entities.
(PSAC 1(1[ 18-26.) The failed corporate credit unions had assets which included
residential mortgage-backed securities ("RMBS") in trusts for which Deutsche Bank
serves as trustee.
Each trust consists of hundreds of individual residential mortgage loans that were
pooled together and securitized for sale to investors. Originators of the residential
mortgage loans underwrite individual loans, and the securitization process begins with
a sponsor who purchases loans in bulk from one or more originators. (Id. 1(1[ 48-49.) The
sponsor transfers title of the loans to an entity called a depositor, who in turn transfers
the loans to a trust that issues notes and/or certificates, providing certificateholders
scheduled principal and interest payments derived from the cash flow from the mortgage
pool underlying the securities. (Id. 1(1[ 49-51.) Once the loans are deposited into a trust,
a master servicer or servicer is tasked with the collection of payments from borrowers,
monitoring the loans, and bringing any necessary foreclosure actions against delinquent
borrowers who are late on payments. (Id. 1[ 56.) The servicers transfer the loan payments
from the borrowers to the trusts and the trustee uses those payments to make scheduled
principal and interest payments to certificateholders. (Id. 1[ 57.)
Deutsche Bank serves as trustee for the RMBS trusts at issue in this litigation and
these trusts are governed by agreements called Pooling and Servicing Agreements
("PSAs"). 2 (Id. 1[ 55.)
Under pressure to stabilize the crashing credit union system, NCUA re-securitized
many of the distressed RMBS trust assets it succeeded to from the failed credit unions
Plaintiff's PSAC (Doc. 114-1) provides much of the information contained in this factual background and
is presumed true for the purposes of these motions.
2 The PSAs for the trusts at issue in the PSAC vary slightly but are largely similar. Exhibit H to the
complaint, Doc. 114-9, contains the relevant language for the PSAs germane to this litigation.
1
3
pursuant to its Guaranteed Notes Program. (Id. 1[ 29.) It formed several trusts known as
NCUA Guaranteed Notes Trusts ("NGN Trusts"), which pooled the RMBS certificates,
along with other securitized assets, to issue new NGN Trust certificates, or notes, valued
at approximately $28.3 billion. (Id.) The holders of these certificates would receive
payments from the underlying assets' cash flows. (Id.) These new NGN Trusts were
guaranteed by NCUA and backed by the full faith and credit of the U.S. Treasury. (Id. 1[
34.) They were structured to last for a period of years and then unwind after all certificate
holders were paid, with the underlying RMBS certificates returned to NCUA after the
unwinding as a result of NCUA retaining what it calls "Owner Trust Certificates." (Id. 1[
32.)
The NGN Trusts issued notes pursuant to a set of three agreements: (1) Trust
Agreements that conveyed the relevant assets from NCUA as liquidating agent of the
credit unions to the NGN Trusts and caused Owner Trust Certificates to be issued to
NCUA through Wells Fargo acting as "Owner Trustee"; (2) Indenture Agreements
between the NGN Trusts and The Bank of New York Mellon ("BNYM") that appointed
BNYM as the Indenture Trustee responsible for holding the NGN Trusts' assets as
collateral and caused the NGN Trust certificates to issue; and (3) Guarantee Agreements
between NCUA, acting in a capacity as executive agency guarantor, the NGN Trusts, and
BNYM. 3 (Id. 1[1[ 30-31.) Under the agreements governing the creation of the NGN Trusts,
BNYM had the exclusive right to bring suit on behalf of the NGN Trusts. (Id. 1[ 35.)
The substance of plaintiff's claims against Deutsche Bank revolve around
Deutsche Bank's duties as Trustee to the original RMBS trusts. According to the PSAC,
Deutsche Bank had both common law and contractual duties as Trustee to, inter alia, (1)
review the underlying mortgage files for completeness and accuracy, (2) notify
appropriate parties and take various actions should it discover breaches of
representations and warranties ("R&Ws") concerning the mortgage loans, and (3) take
similar protective actions upon learning of events of default concerning the trust. (Id. 1[1[
5-7.) NCUA alleges that Deutsche Bank was derelict in its duties and failed to perform
its obligations. According to plaintiff, reports of systemic problems with the mortgages
and the trusts as well as Deutsche Bank's own involvement in the RMBS market support
the likelihood that Deutsche Bank had notice of these issues with the underlying
mortgages, and yet it allegedly took no remedial action. (Id. 1[1[ 8-15.) In addition, NCUA
claims that Deutsche Bank is using funds from the trusts to fund its defense of this
lawsuit. (Id. 1[ 16) As discussed further below, this is a new allegation not contained in
the previous complaint. Plaintiff brings claims for:
The NGN Agreements for the trusts at issue in this litigation are all substantially similar. Representative
examples of an NGN Indenture, NGN Trust Agreement, and NGN Guaranty Agreement from the NCUA
2011-R2 Trusts are attached to the PSAC as Exhibits B, C, and D. (Docs. 114-3, 114-4, 114-5.)
3
4
•
•
•
•
•
(Id.
B.
<_j[<_j[
Count One - Breach of Contract for Deutsche Bank's breaches of the PSAs that
govern the RMBS trusts;
Count Two-Negligence and Gross Negligence under tort law for Deutsche Bank's
neglect of its duties as trustee;
Count Three - Breach of Fiduciary Duty under tort law;
Count Four - Declaratory Judgment that defendant is not permitted to use trust
funds to pay its litigation costs; and
Count Five - Breach of Contract for Deutsche Bank's unlawful withdrawals from
the trust funds to pay its litigation costs.
523-58.)
Procedural History
NCUA filed its original complaint in this action on November 7, 2014. (Doc. 1.) In
NCUA's amended complaint filed in March 2015, it brought claims on behalf of 97 trusts
for which Deutsche Bank served as trustee. (First Amended Complaint ("F AC"), Doc.
38.) Of those 97, NCUA only had a direct interest in 8 - the rest were re-securitized and
held in the NGN Trusts for which BNYM served as trustee. (Id. <_j[ 28; Ex. A.) BNYM,
conflicted because it is an RMBS trustee and was in a similar position to Deutsche Bank
as a defendant in separate litigation, refused to exercise its authority to bring suit for these
claims on behalf of the NGN Trusts. (See id. <_j[<_j[ 48-54.) NCUA alleged that it still had
derivative standing to pursue claims on behalf of the 89 other trusts on the theory that it
had a latent interest in the NGN Trusts after they wound down and as" an express thirdparty beneficiary under the NGN Indenture Agreements." (Id . <_j[<_j[ 43, 55.)
NCUA also filed three similar cases against different RMBS trustee defendants:
HSBC, U.S. Bank, and Wells Fargo. As those cases went forward, courts in this District
weighed in on whether NCUA had standing to bring claims on behalf of the NGN Trusts.
First, Judge Forrest granted U.S. Bank's motion to dismiss in May 2015 on the theory that
NCUA did not have standing to bring claims on behalf of the NGN Trusts. Nat'l Credit
Union Admin. Bd. v. U.S. Bank Nat. Ass'n, No. 14-cv-9928, 2015 WL 2359295 (S.D.N.Y. May
18, 2015). Judge Forrest stated that NCUA did not have standing under 12 U.S.C. §
1787(b)(2)(A)(i) as a liquidating agent of the credit union or as a third-party beneficiary
to the trusts and that NCUA did not adequately plead a derivative action. Id. at *4-6.
Two months later, in Nat'l Credit Union Admin. Bd. v. HSBC Bank USA, Nat. Ass'n, 117 F.
Supp. 3d 392 (S.D.N.Y. 2015), Judge Scheindlin also rejected NCUA's direct standing
theories but held that NCUA could assert derivative standing on behalf of the NGN
Trusts. Id. at 399-400. While Judge Scheindlin pointed to some ministerial defects in
NCUA' s pleading of derivative standing, she noted her disagreement with Judge Forrest
and held that NCUA could be a proper derivative plaintiff. See id. at 400, n.45. In
February 2016, Judge Forrest again granted U.S. Bank's motion to dismiss after NCUA
5
amended its complaint, finding that the NGN Indenture Agreements with BNYM
precluded NCUA from bringing such a derivative action. Nat'l Credit Union Admin. Bd.
v. U.S. Bank Nat'l Ass'n, No. 14-cv-9928, 2016 WL 796850, at *9-10 (S.D.N.Y. Feb. 25, 2016)
("U.S. Bank II"). Two months later, NCUA filed a similar motion in that case to the one
before the Court here, asking Judge Forrest to replead and seeking to substitute a newlyappointed separate trustee under Rules 15 and 17; Judge Forrest denied the motion in an
order, principally on untimeliness grounds. (14-cv-9928, Doc. 141.)
While the above was occurring, Deutsche Bank had a pending motion to dismiss
in this case where it argued, among other things, that NCUA had no standing to bring
claims on behalf of the NGN Trusts. (See Doc. 47.) After Judge Forrest's second U.S. Bank
decision, on July 22, 2016, NCUA wrote a letter to the Court urging that NCUA had
standing, but if the Court disagrees, it was "prepared to appoint a Separate Trustee who
would replace NCUA as the plaintiff to pursue these claims." (Doc. 83.) NCUA noted
that it had offered to substitute a separate trustee in the Wells Fargo case and brief the
issues, but Judge Failla, who had not yet issued a ruling on NCUA' s standing in that case
either, denied NCUA's request as unnecessary, "stating that NCUA could seek leave to
amend in the event of an adverse ruling on its derivative standing ... [and] that the time
during which the motion to dismiss is pending will not factor into an assessment of the
timeliness of any subsequent motion to substitute a Separate Trustee." (Id.) NCUA urged
that it would be "logical, efficient, and fair" to conduct a similar procedure in this case,
waiting to substitute a separate trustee until after the Court's ruling on Deutsche Bank's
then-pending motion to dismiss. (Id. )4 Deutsche Bank responded that it "agrees with
NCUA that this Court should first rule on the Trustee's motion to dismiss before even
considering the issues raised in NCUA's letter" but previewed arguments against
substitution of a separate trustee, pointing to, among other things, NCUA's "wait[ing] an
unreasonable amount of time to request substitution" after court decisions previewed
"serious defects" in NCUA's standing. (Doc. 86.) It also added that, with respect to
NCUA's discussion of the Wells Fargo case, "NCUA fails to mention that Judge Failla
also recognized the potential merits of Wells Fargo's arguments that NCUA had already
unduly delayed in seeking substitution and that there were related statute of limitations
issues as well." (Id.)
In the suit against Wells Fargo, in March 2017, Judge Failla ultimately largely
agreed with Judge Forrest and held that NCUA did not have any standing to bring claims
on behalf of the NGN Trusts. BlackRock Allocation Target Shares: Series S. Portfolio v. Wells
Fargo Bank, Nat'l Ass'n, 247 F. Supp. 3d 377, 407-415 (S.D.N.Y. 2017) ("Wells Fargo I"). In
In addition, in this letter and in another, later letter (Doc. 92), NCUA notified the Court that several of
the NGN Trusts had "unwound" and the underlying RMBS certificates returned to N CUA since the FAC
was filed .
4
6
August 2017, Judge Failla allowed NCUA to replead and substitute a separate trustee for
the NGN Trust claims. BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo
Bank, Nat'l Ass'n, No. 14-cv-1006, 2017 WL 3610511, at *13-21 (S.D.N.Y. Aug. 21, 2017)
("Wells Fargo II") . In doing so, she rejected the defense's substantive arguments against
the substitution as well as its arguments of unjustified delay, noting that "when the
NCUAB offered to undertake a 'fallback' motion with regard to its standing, it was this
Court that did not permit it to do so." Id. at *19.
In June 2019, after all the briefing on the current motions were completed,
Magistrate Judge Netburn granted NCUA's motion to replead and substitute a separate
trustee under Rules 15 and 17 in the HSBC case. Nat'l Credit Union Admin. Bd. v. HSBC
Bank US, Nat'l Ass'n, No. 15-cv-02144, 2019 WL 2223406 (S.D.N.Y. May 22, 2019) ("HSBC
II") . The parties here wrote post-briefing letters to the Court discussing the import of this
decision. (Docs. 160, 163.) As discussed in detail below, the issues Judges Failla and
Netburn dealt with in the Wells Fargo and HSBC cases are largely rehashed in the motion
to replead and substitute under Rules 15 and 17 currently before this Court.
Turning back to this case, as noted above, on July 31, 2018, the Court held oral
argument on Deutsche Bank's motion to dismiss and stayed the case pending the
outcome of NCUA's appeal of Judge Forrest's decision. Two days later, the Second
Circuit released its decision, affirming Judge Forrest's decisions to (1) dismiss NCUA's
derivative claims for lack of standing and (2) deny as untimely NCUA' s motion for leave
to file another amended complaint under Rule 15 and to substitute a separate trustee as
plaintiff under Rule 17. Nat'l Credit Union Admin. Bd. v. U.S. Bank Nat'l Ass'n, 898 F.3d
243 (2d Cir. 2018). In affirming the denial of leave to amend and substitute, the Second
Circuit found that Judge Forrest did not abuse her discretion and noted that even though
she was clear about NCUA' s standing defects in her first decision and stated that NCUA
would receive a "single opportunity to replead," NCUA "nevertheless decided to use its
final amendment to double down on its already-dismissed theory of standing." Id. at 257.
Writing for the panel, Judge Cabranes added that "our conclusion in this respect does not
mean that a district court's grant of leave to supplement in a similar situation would be
an abuse of discretion," citing Wells Fargo II and explaining that, "[b ]ecause this is a
discretionary call, the two are. not mutually exclusive." Id. at 256 n.86 (emphasis in
original) .
Per the Second Circuit's decision, claims for 89 out of 97 trusts listed in NCUA' s
FAC in this case were no longer viable because NCUA did not have standing to bring
them. Accordingly, plaintiff now seeks to file a second amended complaint and
substitute Graeme W. Bush, a newly appointed Separate Trustee, as plaintiff for claims
made on behalf of the NGN Trusts.
7
II.
OVERVIEW
On October 5, 2018, NCUA filed a motion (1) for leave to file a proposed second
amended complaint and (2) to substitute the Separate Trustee as plaintiff for the NGN
claims. (Doc. 112.) In its memorandum of law, plaintiff states that "[b]y agreement
executed August 29, 2018, BNYM appointed Graeme W. Bush as Separate Trustee to
bring the claims held by BNYM against Deutsche Bank." (Pl.'s Mem., Doc. 113, at 7; see
Doc. 114-7, Attaway Ex. l.F.) 5 NCUA now attempts to bring claims on behalf of 37 trusts.
"[F]or 14 trusts NCUA directly holds all pertinent certificates; for another 17 trusts NGN
Indenture Trustee BNYM holds all pertinent certificates; and for the remaining 6 trusts,
both NCUA and the NGN Indenture Trustee hold one or more certificates." (PL' s Mem
at 7-8; see Doc. 114-2, Attaway Ex. l.A.) As Deutsche Bank points out, NCUA had
originally brought claims derivatively for 34 out of the 37 trusts it now brings claims for,
but 13 trusts had completely unwound in the interim, and 4 trusts had certain certificates
unwind and returned to NCUA since the FAC was filed. (Def.'s Mem., Doc. 118, at 1 n.2;
see Doc. 119-1, Garbutt Ex. 1.)
NCUA outlines the differences between the FAC and the PSAC. Those are: (1)
updating facts related to the Separate Trustee's appointment and re-conveyance of
certificates from unwound NGN Trusts; (2) adding authorization from Cede & Co. to
bring suit; (3) facts and claims regarding Deutsche Bank's use of the RMBS trust funds to
pay for its litigation defense; (4) eliminating claims NCUA has voluntarily dismissed
pursuant to the Court's July 31 order (Doc. 98; see also Doc. 104); and (5) "changes that
clarify, but do not materially alter, the FAC claims." (Pl.'s Mem. at 7-9.) Deutsche Bank
opposes all the above changes pursuant to Rules 15 and 17 and moves to dismiss the
allegations contained in the PSAC on the merits pursuant to Rule 12. Deutsche Bank also
separately moves to stay plaintiffs' new claims related to Deutsche Bank's use of the trust
funds to pay for its litigation defense.
III.
DISCUSSION
A.
Plaintiff's Motion for Leave to Amend the First Amended Complaint and
Substitute a Separate Trustee is Granted.
1.
Legal Standard
Under Rule 15(a)(2), "a party may amend its pleading only with the opposing
party's written consent or the court's leave. The court should freely give leave when
justice so requires." Fed. R. Civ. P. 15. "Courts, however, may deny leave in cases of
undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to
Plaintiff also states that "[t]he Separate Trustee Agreement here is identical in all material respects to the
agreement construed in Wells Fargo II." (Id.)
5
8
cure deficiencies by amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, futility of amendment, etc." U.S. ex rel.
Kirk v. Schindler Elevator Corp., 926 F. Supp. 2d 510, 516 (S.D.N.Y. 2013) (quoting Ruotolo
v. City of N. Y., 514 F.3d 184, 191 (2d Cir. 2008)) (internal quotation marks omitted). 6 The
Second Circuit has noted its "strong preference for resolving disputes on the merits."
Williams v. Citigroup Inc., 659 F.3d 208, 212-13 (2d Cir. 2011) (internal citation omitted) .
Rule 17(a)(3) provides that "[t]he court may not dismiss an action for failure to
prosecute in the name of the real party in interest until, after an objection, a reasonable
time has been allowed for the real party in interest to ... be substituted into the action."
Fed. R. Civ. P. 17. Further, "[a]fter ... substitution, the action proceeds as if it had been
originally commenced by the real party in interest." Id. "A Rule 17(a) substitution of
plaintiffs should be liberally allowed when the change is merely formal and in no way
alters the original complaint's factual allegations as to the events or the participants."
Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997). But "[a]
district court may deny a Rule 17(a) motion as untimely if it is not filed within a
reasonable time after a standing objection is raised." U.S. Bank, 898 F.3d at 256 (quoting
Commonwealth of Pa. Pub. Sch. Emps.' Ret. Sys. v. Morgan Stanley & Co., 814 F.3d 641, 643
(2d Cir. 2016)) (internal quotation marks omitted).
2.
NCUA's Proposed Amendment and Substitution is Timely and There Has
Been No Undue Delay.
As noted above, Rule 17 allows for "a reasonable time" after an objection has been
lodged for the real party in interest to be substituted into the action. Fed. R. Civ. P. 17.
Deutsche Bank contends that, for tactical reasons, NCUA waited almost three-and-a-half
years from when Deutsche Bank filed its motion to dismiss the FAC objecting to NCUA's
standing (on May 1, 2015) until NCUA made this motion to substitute (on October 5,
2018), which Deutsche Bank proffers is not within "a reasonable time." (Def.'s Mem. at
2-5.) Deutsche Bank points to many instances in other litigations where NCUA was made
aware of its lack of standing, including the defendants' arguments in the U.S. Bank and
Wells Fargo cases as well as the subsequent court decisions in those cases. (Id.) NCUA
counters that the split among the district judges on the validity of NCUA's derivative
standing showed that reasonable minds differed on the complex standing issue/ and that
To the extent plaintiffs are also seeking to amend pursuant to Rule 15( d), which states that "[ o ]n motion
and reasonable notice, the court may, on just terms, permit a party to serve a supplemental pleading
setting out any transaction, occurrence, or event that happened after the date of the pleading to be
supplemented," the same standard applies. Quaratino v. Tiffany & Co., 71 F.3d 58, 66 (2d Cir. 1995); Klein
v. PetroChina Co., 644 F. App'x 13, 15 (2d Cir. 2016) .
7 Deutsche Bank argues (Def.'s Mem at 11 n.11) that there really was no split in authority, pointing to a
district court decision by Judge Caproni (who sat on the Second Circuit U.S. Bank panel) where she
discussed the split in authority on NCUA's standing but stated that Judge Scheindlin "may have acted
6
9
NCUA was not required to "abandon a theory before a pending motion to dismiss is
decided in the face of split authority in the same district." (Pl.'s Mem. at 16.)
NCUA cites Loreley Financing v. Wells Fargo Securities, 797 F.3d 160 (2d Cir. 2015)
in support. In Loreley, the Second Circuit wrote that the district court's procedure in
which it denied leave to amend was improper, where, after a pre-motion conference in
which the defense previewed its arguments to dismiss the plaintiff's complaint, the
district court "presented Plaintiffs with a Hobson's choice: agree to cure deficiencies not
yet fully briefed and decided or forfeit the opportunity to replead." Id. at 190. NCUA
argues that this case is similar - Deutsche Bank's arguments alone without this Court's
ruling on the motion to dismiss cannot suffice to prevent NCUA from repleading.
However, the Second Circuit in U.S. Bank rejected this precise argument. In
affirming Judge Forrest's decision to disallow NCUA from repleading on untimeliness
grounds, it noted that NCUA had notice of its standing issues and distinguished Loreley:
"Nor did NCUA face a true 'Hobson's choice' between abandoning the derivative
standing theory and requesting BNYM appoint a separate trustee. NCUA could have
proceeded under both theories by simply alleging that the separate trustee was willing
to acquiesce in NCUA's suit." 898 F.3d at 258. However, as noted above, even though
U.S. Bank affirmed Judge Forrest's decision, it specified that because this is a discretionary
call reviewed for abuse of discretion, its conclusion "does not mean that a district
court's grant of leave to supplement in a similar situation would be an abuse of
discretion." Id. at 256 n.86 (emphasis in original).
Both sides make hay of the parties' acknowledgements and concessions in their
2016 letters to the Court, discussed above, but the arguments made are unavailing. While
NCUA did offer to appoint a separate trustee if the Court did not agree it had derivative
standing, that offer does not change the calculus - it is clear NCUA knew of potential
standing issues, but NCUA was waiting for a Court ruling on the issue and offered in the
alternative to substitute in a separate trustee. And while Deutsche Bank did agree with
NCUA that the best procedure was for the Court to first rule on the then-pending motion
to dismiss before any substitution was made, it did reserve room to argue that NCUA
under the misapprehension that the NGN Trusts held RMBS certificates." Royal Park Invs. SA/NV v.
HSBC Bank USA, Nat 'l A ss'n, 2018 WL 3655781, *4 n .7 (S.D.N.Y. Aug. 2, 2018) (denying NCUA' s motion to
intervene). NCUA points to a different aspect of the HSBC litigation to make the opposite argument. It
notes that HSBC, a sophisticated party represented by able counsel, did not even argue that the NGN
Trusts no longer held the claims, and rather argued that NCUA failed to meet certain demand
requirements in its pleading. (Pl.' s Mem. at 17-18; Pl.'s Reply Mem., Doc. 126 at 8-9.) Clearly, this
standing issue led to differing opinions at the district court level, and it is a fair inference that NCUA' s
assertion of derivative standing in the FAC was made in good faith.
10
had already delayed too much before seeking substitution. Therefore, the parties' letters
to the Court are of no consequence to the issue of timeliness.
Ultimately, the crucial difference between this case and the U.S Bank/Wells
Fargo/HSBC cases is that this Court never ruled on NCUA's derivative standing. Judge
Forrest denied leave to replead and substitute a separate trustee because she had already
dismissed NCUA' s complaint twice, alerting NCUA to the standing issues after her first
ruling and warning NCUA that it would have only a "single opportunity to replead."
The Second Circuit affirmed that decision. Judge Failla rejected NCUA' s derivative
standing theory as well and still allowed it to replead in the same manner it seeks to do
here. Judge Netburn similarly allowed NCUA to replead and substitute a separate
trustee against HSBC in the wake of Second Circuit's U.S. Bank decision. Because this
Court never ruled on the standing issue, it now denies Deutsche Bank's objections of
untimely substitution under Rule 17 and undue delay, bad faith, and dilatory motive
under Rule 15.
3.
NCUA' s Proposed Amendment and Substitution is Not Too Broad in Scope.
Next, Deutsche Bank urges that a Rule 17 substitution is only liberally allowed
"when the change is merely formal and in no way alters the original complaint's factual
allegations as to the events or the participants." Advanced Magnetics, 106 F.3d at 20
(emphasis added) . Here, by contrast, Deutsche Bank argues that the substitution requires
more than a "merely formal" changing of the parties' names and would require plaintiff
to plead the execution of the Separate Trustee agreement and the unwinding of certain
NGN Certificates in addition to the new allegations contained in the PSAC (regarding
indemnification, etc.). (Def.' s Mem. at 5-7.)
In Advanced Magnetics, one of the leading Second Circuit cases on Rule 17(a), the
Second Circuit reversed the district court's denial of the plaintiff's motion for leave to
amend its complaint. The plaintiff had brought securities fraud claims on behalf of itself
and as assignee for several individual shareholders. When the assignments were brought
into question during discovery, the plaintiff sought leave to amend its complaint in order
for the individual shareholders to bring claims on behalf of themselves. The district court
(1) ruled that the assignments merely transferred the right to sue but did not transfer full
ownership, which was insufficient to allow the plaintiff to bring claims on behalf of the
shareholders, and (2) denied the plaintiff leave to amend because the amendment would
not "relate back" under Rule 15(c) and would thus be time-barred under the applicable
statute of limitations. The Second Circuit upheld the district court's decision regarding
the insufficiency of the assignments, but reversed the denial for leave to amend, finding
that the court should have allowed amendment under Rule 17(a), which then would have
"related back." Id. at 17-21. The reversal was premised on three reasons: (a) "[t]he
complaint's only pertinent flaw was the identity of the party pursuing those claims" and
11
the factual and legal allegations of the complaint would remain unaltered, (b) there was
no indication of "bad faith or ... an effort to deceive or prejudice the defendants," and
(c) there was no unfairness to defendants to allow a Rule 17(a) substitution because not
only were the defendants on notice of the plaintiff's substantive claims, "[l]eave to amend
was requested even prior to defendants' motion to dismiss." Id. at 20-21.
In Cortlandt St. Recovery Corp. v. Hellas Telecommunications, S.a.r.l, the Second
Circuit upheld the district court's denial of leave to plead a new assignment under Rule
17(a)(3) and distinguished itself in part from Advanced Magnetics by observing that the
proposed assignment at issue, which was sought by the plaintiff to cure standing defects,
would have required substantive amendments to the complaint to "necessarily reflect the
contents of the new assignment" and would thus "require more than a merely formal
alteration of the complaint." 790 F.3d 411,424 (2d Cir. 2015).
At first glance, it appears as though NCUA is trying to make the exact move
rejected in Cortlandt 8 by making a substitution under Rule 17(a)(3) which would require
further pleading as to the nature of the new assignment. However, there are several ways
to distinguish this case from Deutsche Bank's proposed narrow reading of Cortlandt.
First, Wells Fargo II distinguished Cortlandt when granting NCUA leave in that
case. Judge Failla noted that the Cortlandt panel specifically distinguished itself from
Advanced Magnetics by pointing to the fact that in Advanced Magnetics, the plaintiff had
standing on at least some of the claims from the outset, whereas the plaintiff in Cortlandt
never had any Article III standing, so "there was no valid lawsuit pending ... in which to
permit an amended complaint." 2017 WL 3610511, at *17 (quoting Cortlandt, 790 F.3d at
422). Here too, NCUA had standing at the outset on at least the few certificates that it
never re-securitized.
Second, the reasoning provided by House of Europe Funding I Ltd. v. Wells Fargo
Bank, No. 13-cv-519, 2015 WL 5190432 (S.D.N.Y. Sept. 4, 2015) also supports granting
NCUA leave to substitute. In that decision, Judge Sullivan, sitting in the district court,
permitted the plaintiff to amend its complaint to plead its newly-acquired authorization
to pursue the litigation despite the fact that doing so would entail new factual allegations,
noting that "the sole change in the amended pleading would be the inclusion of a single
sentence asserting that Wells Fargo authorized the instant litigation." Id. at *4. He
distinguished Cortlandt in part by asserting that this was indeed a '"merely formal'
alteration, akin to substituting the name of the party. "Amending a complaint to
incorporate the fact that the ratifying party duly authorized a lawsuit cannot, on its own,
be considered too substantial of a change to fall within Rule 17(a)." Id. at *7. See also Wells
s Or, more precisely, rejected by the district judge there and upheld by the Second Circuit in Cortlandt for
lack of abuse of discretion . ..
12
Fargo II, 2017 WL 3610511, at *17-18 (citing House of Europe when granting NCUA leave
to amend).
Other grounds for granting NCUA leave show how the "merely formal" inquiry
under Rule 17 bleeds into considerations of bad faith. In Wells Fargo II, Judge Failla
pointed to Cortlandt's description of Rule 17(a)(3) that the Rule "had been amended
specifically 'to avoid forfeiture and injustice when an understandable mistake has been
made in selecting the party in whose name the action should be brought,' as well as to
'codif[y] the modern judicial tendency to be lenient when an honest mistake has been
made in selecting the proper plaintiff."' 2017 WL 3610511, at *17 (quoting Cortlandt, 790
F.3d at 421). In Klein ex rel. Qlik Techs., Inc. v. Qlik Techs., Inc., the Second Circuit focused
the Rule 17(a)(3) inquiry on the plaintiff's lack of bad faith (consistent with Advanced
Magnetics) and reversed the district court's denial of leave to substitute, emphasizing that
"[e]nsuring that an otherwise proper suit is not dismissed for want of a proper party
when that party is ready and willing to join the fray is the very purpose of 17(a)(3)." 906
F.3d 215,226 (2d Cir. 2018). Here, as discussed with respect to the issue of timeliness, the
split in authority in the Southern District of New York on the validity of NCUA's
derivative standing supports the view that NCUA' s delay was not made in bad faith.
Deutsche Bank counters that there was no "mistake" - rather, NCUA delayed for
"deliberate and tactical" reasons. (See Def.'s Mem. at 8-11.) Deutsche Bank points to the
substantial notice NCUA had of its standing issues and argues that NCUA decided to file
the lawsuit and figure out the standing issues later because of the impending statute of
limitations deadline it was facing. (Id.) However, even in Advanced Magnetics - which
Deutsche Bank focuses on - the plaintiff originally brought the case as an assignee
because it gave them some benefit to sue on behalf of the individual shareholders, but
once it realized the assignment was invalid, it sought to substitute. The Advanced
Magnetics court did not deem that to be "deliberate or tactical" because the plaintiff made
a mistake as to the legal effects of the assignments. 106 F.3d at 20-21. So too here, there
was an understandable mistake as to the legality of NCUA's purported derivative
standing- as evidenced by the split of authority in this district. And as Klein emphasized,
the focus is on bad faith overall - there is no prerequisite that there have been an "honest
mistake." 906 F .3d at 227.
Summing up the three Advanced Magnetics factors and applying them to NCUA' s
motion there, Judge Failla concluded that (a) "the only pertinent flaw" in NCUA's
previous complaint was the identity of the party, (b) there was no bad faith by NCUA,
rather a "genuine belief in its standing, which belief was reasonable in light of the law
then-existing in this District," and (c) the proposed substitution did not "prejudice
Defendant, who has had notice of the substance of the allegations, the relevant actors,
13
and their claims for several years." Wells Fargo II, 2017 WL 3610511, at *18. She therefore
granted NCUA' s motion for leave. The same considerations apply here.
Last, and perhaps most importantly, NCUA is attempting what the Second Circuit
described as a "two-prong maneuver," U.S. Bank, 898 F.3d at 251, which makes it
distinguishable from the facts in Cortlandt. Here, NCUA is seeking to amend its
complaint under Rule 15. On such motions, courts are to "freely give leave when justice
so requires." Fed. R. Civ. P. 15. Once the complaint is amended under Rule 15, Rule
17(a)(3) would permit the "merely formal" substitution of the Separate Trustee for the
NGN Trust claims. Although Deutsche Bank contends that the use of both Rules 15 and
17 "finds no support in law," (Def.'s Mem. at 7,) that is not quite true. In fact, Cortlandt
specifically underscored this: "We cannot rule out the possibility that Cortlandt might
have avoided these challenging procedural pitfalls through a request for leave to obtain
a valid assignment under some other rule of civil procedure. It did not. It has relied upon only
Rule 17 in the present appeal." Cortlandt, 790 F.3d at 424-25 (emphasis added). Here,
NCUA is indeed using "some other rule of civil procedure" in conjunction with Rule 17
- that is, Rule 15. See HSBC II, 2019 WL 2223406 at *8 (distinguishing Cortlandt on similar
reasoning). 9
Consistent with the emphasis in the case law on liberally allowing Rule 17(a)(3)
substitutions and the fact that NCUA is framing this as a conjoined motion under Rules
15 and 17, the Court rejects defendant's argument that these changes are invalid due to
their broad scope.
4.
NCUA May Substitute Itself as Plaintiff for the "Unwound" Certificates.
As set forth above, NCUA originally sued on behalf of the NGN Trusts in the FAC,
but the Second Circuit determined that it did not have standing to do so. Since the FAC
was filed in 2015, several NGN Trusts have "unwound" and the underlying RMBS
certificates have been returned to NCUA. Now, in the PSAC, in addition to seeking to
substitute the Separate Trustee as plaintiff for the NGN Trusts, NCUA seeks to substitute
itself as a direct plaintiff for those NGN Trusts that have "unwound."
Although Deutsche Bank objects to this substitution on grounds of bad faith and
untimeliness as well, the analysis is the same here as the above analysis. Deutsche Bank's
For this reason, Deutsche Bank's reliance on Judge Kaplan's post-briefing decision in Dennis v. JPMorgan
Chase & Co., 342 F. Supp . 3d 404 (S.D.N.Y. 2018) is unavailing. (See Deutsche Bank Letter dated Jan. 4,
2019, Doc. 138.) In Dennis, Judge Kaplan ruled that the plaintiffs could not make a Rule 17(a) substitution
of the "real party in interest" because the substitution would require more than a "merely formal"
amendment to the complaint. 342 F. Supp. 3d at 417 (citing Cortlandt, 790 F.3d at 424) . However, Judge
Kaplan never entertained a proposed substitution under Rule 15 as NCUA contemplates here. Therefore,
Dennis is inapposite.
9
14
arguments fail. Also, as discussed above, NCUA had Article III standing at the outset on
some certificates and is allowed to now amend and substitute to reflect the events that
have occurred in the interim. See Wells Fargo I, 247 F. Supp. 3d at 415-16 (rejecting
defendant's argument that NCUA had no standing to assert claims on "recently
unwound" trusts).
5.
Agreement.
Deutsche Bank Does Not Have Standing to Challenge the Separate Trustee
As noted above, BNYM, as Indenture Trustee, was originally the party with the
power to bring suit against Deutsche Bank, and the Second Circuit ruled in U.S. Bank that
NCUA did not have standing to bring this suit derivatively. Now, NCUA attempts to
substitute Graeme W. Bush, a Separate Trustee appointed on August 29, 2018, to bring
claims on behalf of the NGN Trusts. Deutsche Bank insists that regardless of its other
arguments, Bush as Separate Trustee is not the "real party in interest" under Rule 17(a)(3)
because the Separate Trustee Agreement between NCUA, BNYM, and Bush (Doc. 114-7,
Attaway Ex. l.F), which appointed Bush and granted him the rights to bring this case, is
invalid under the NGN Indenture Agreements between the NGN Trusts and BNYM
(Doc. 114-3, Attaway Ex. l .B). Deutsche Bank contends that the NGN Indenture
Agreements are violated by the Separate Trustee Agreement in four ways: (1) the
provision in the NGN Indentures which governs the appointment of a Separate Trustee
allows a Separate Trustee to be appointed for the purposes of helping BNYM in the
performance of its duties and must act jointly with BNYM, and Bush is doing neither
here; (2) Bush is compensated beyond what is permissible under the NGN Indentures;
(3) Bush's appointment improperly releases BNYM of its duties; and (4) NCUA has no
authority to direct litigation here.
Regardless of the merits of its arguments, Deutsche Bank does not have standing
to challenge the validity of a trust agreement it is not a party to. Rajamin v. Deutsche Bank
Nat'l Trust Co., 757 F.3d 79 (2d Cir. 2014) . In Rajamin, the Second Circuit rejected
mortgage borrowers' purported standing where the borrowers sued the trustee of the
trusts to which their loans were assigned. The borrower plaintiffs there sought a
declaratory judgment that the trusts did not own their mortgages on the grounds that
that parties to the assignment agreements failed to comply with certain terms of those
agreements. See id. at 86-90. The Rajamin facts are analogous to those before the Court
here. Deutsche Bank is seeking to challenge the Separate Trustee Agreement, an
agreement to which it is not a party, as noncompliant with the NGN Indenture
Agreements, to which Deutsche Bank is not party either. It does not have standing to do
so. See Wells Fargo II, 2017 WL 3610511, at *16 (citing Rajamin and noting that the court
was "not convinced that [the defendant has] standing to challenge the validity of the
15
Separate Trustee Agreement as a means of challenging the Separate Trustee's real-partyin-interest status").
On the standing issue, Deutsche Bank points to the Second Circuit's decision in
U.S. Bank, where the panel rejected NCUA' s argument that the defendants lacked
standing to challenge actions taken by BNYM as trustee by pointing out that the
defendants were "not challenging actions taken by BNYM as trustee"; rather, they were
"simply relying on the Trust and Indenture Agreements to demonstrate that NCUA
Liquidating Agent and the NGN Trusts assigned their claims to BNYM." 898 F.3d at 255.
While Deutsche Bank argues that it too is simply using the NGN Indenture Agreements
to "demonstrate" that the Separate Trustee lacks standing (Def.'s Mem. at 12 n.12), there
is a distinction between the two cases. U.S. Bank simply confirmed that an entity can
point to an agreement to which it is not a party in order to show the court that an
assignment has occurred, but, per Raj am in, that party does not have standing to challenge
the validity of that assignment by arguing that the terms of the contract or assignment
were not abided by.
Even if the Court were inclined to engage with Deutsche Bank's challenges to the
Separate Trustee Agreement on the merits, it would find the challenges to be based on
contract language that is ambiguous enough for the pleadings to survive at this stage.
"Unless for some reason an ambiguity must be construed against the plaintiff, a claim
predicated on a materially ambiguous contract term is not dismissible on the pleadings."
Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N .Y., 375 F.3d 168, 178 (2d Cir.
2004).
In addition to advancing arguments about the validity of the Separate Trustee
Agreement, Deutsche Bank attempts to rebut a point NCUA says it never made, namely
that even if Bush lacks authority to sue as a trustee, he can pursue the claims as BNYM's
assignee. Deutsche Bank argues that Bush cannot bring claims on behalf of BNYM as its
assignee because (1) Bush has no standing to bring claims because BNYM, which receives
the proceeds of the lawsuit under the Separate Trustee Agreement, did not divest itself
from all control in the claims and (2) such an assignment would violate New York's
prohibition on champerty. (Def.'s Mem. at 14-15.) Fundamentally, these arguments fail
because nowhere is Bush purported to be an assignee. He was appointed as a trustee
pursuant to the Separate Trust Agreement. Indeed, the word "assign" is nowhere in the
Separate Trustee Agreement. NCUA never argued in its opening memorandum of law
that Bush could bring the claims as an assignee. (See PL' s Reply Mem. at 5.) The Court
will accordingly disregard Deutsche Bank's arguments against the non-existent
assignment.
16
6.
The Separate Trustee Benefits From NCUA' s Extender Statute.
12 U.S.C. § 1787(b)(14) (the "Extender Statute") sets the period for NCUA to bring
contract claims at "the longer of" "the 6-year period beginning on the date the claim
accrues" or "the period applicable under State law." 12 U.S.C. § 1787(b)(14)(A)(i); see also
id.§ 1787(b)(14)(A)(ii) (similarly measured "3-year period" for tort claims). The extender
period runs from "the later of" "the date of the appointment of [NCUA] as conservator
or liquidating agent" or "the date on which the cause of action accrues" under state law.
Id.§ 1787(b)(14)(B). Under the Extender Statute, claims would have only started accruing
on March 20, 2009, the day the first credit unions went into conservatorship - thus those
claims would expire six years later on March 20, 2015. Any claims that accrued after the
NGN re-securitizations in 2010 and 2011 would have accrued to BNYM as Indenture
Trustee, who would benefit from New York's statutes of limitation - six years for contract
claims and three years for tort claims. NCUA filed its original complaint on November
7, 2014. (Doc. 1.) Thus, NCUA's claims are all timely.
Deutsche Bank claims that the Extender Statute only applies to actions brought by
NCUA and does not travel to the Separate Trustee. (See Def.' s Reply Mem., Doc. 132 at
9.) However, five federal courts of appeal have ruled that, with respect to extender
statutes for other federal agencies (e.g. the FDIC's), the benefit of the extender statutes
passes to an assignee of the federal agency. See, e.g., UMLIC VP LLC v. Matthias, 364 F.3d
125, 133 (3d Cir. 2004); Beckley Capital L.P. v. DiGeronimo, 184 F.3d 52, 57 (1st Cir. 1999);
UMLIC-Nine Corp. v. Lipan Springs Dev. Corp., 168 F.3d 1173, 1177 n.3 (10th Cir. 1999);
United States v. Thornburg, 82 F.3d 886, 890-91 (9th Cir. 1996); FDIC v. Bledsoe, 989 F.2d 805,
809-12 (5th Cir. 1993).
The Court finds no articulable reason for NCUA's Extender Statute to be treated
differently than another federal agency's, like the FDIC' s. After all, the extender statutes
for both the FDIC and NCUA were enacted pursuant to the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 and are "materially identical." FDIC v. First
Horizon Asset Sec., 821 F.3d 372,375 n.1 (2d Cir. 2016). NCUA's claims are timely.
7.
Conclusion
For the reasons articulated above, the Court grants leave for NCUA to amend its
complaint and substitute the Separate Trustee as plaintiff for claims made on behalf of
the NGN Trusts and itself as plaintiff on behalf of the unwound certificates pursuant to
Rules 15 and 17.
17
B.
Defendant's Motion to Dismiss the Proposed Second Amended Complaint10 is
Granted in Part and Denied in Part.
1.
Legal Standard
On a motion to dismiss pursuant to Rule 12, "all factual allegations in the
complaint are accepted as true and all inferences are drawn in the plaintiff's favor."
Apotex Inc. v. Acorda Therapeutics, Inc., 823 F.3d 51, 59 (2d Cir. 2016) (quoting Littlejohn v.
City of N. Y., 795 F.3d 297, 306 (2d Cir. 2015)). "[A] district court may consider the facts
alleged in the complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint." DiFolco v. MSNBC Cable L.L.C.,
622 F.3d 104, 111 (2d Cir. 2010). "[W]here a conclusory allegation in the complaint is
contradicted by a document attached to the complaint, the document controls and the
allegation is not accepted as true." Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140,
147 (2d Cir. 2011).
"To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its face." Fin. Guar.
Ins. Co. v. Putnam Advisory Co., LLC, 783 F.3d 395, 401 (2d Cir. 2015) (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). "To state a plausible claim, the complaint's factual
allegations must be enough to raise a right to relief above the speculative level." Id.
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)) (internal quotation marks
omitted).
2.
Denied.
Deutsche Bank's Motion to Dismiss NCUA' s Breach of Contract Claims is
Count One in the PSAC charges Deutsche Bank with breaching its contractual
duties as trustee under the PSAs. (PSAC <_j[<_j[ 523-33.) "The PSAs are contracts between,
in addition to others, the depositor, the master servicer or servicer, and the trustee, which
govern the trusts that issued the certificates ... [and] set forth Defendant's contractual
duties and obligations, which are substantially similar for each trust." (Id. <_![<_![ 62-63.) 11
The PSAC points to various provisions in the PSAs outlining Deutsche Bank's duties,
which include (1) pre-Event of Default ("EOD") 12 obligations such as taking possession
of and reviewing mortgage files conveyed to the trust and notifying relevant parties of
Deutsche Bank filed a motion to dismiss the PSAC in its entirety if the Court granted NCUA's motion
for leave to file the PSAC and substitute the Separate Trustee as plaintiff for the NGN claims. (Doc. 117.)
Because the Court grants plaintiff's motion, it now turns to Deutsche Bank's motion to dismiss the PSAC.
11 Each PSA is several hundred pages long. Doc. 114-10, Attaway Ex. 1.1, is a sample PSA for one of the
trusts. Doc. 114-9, Attaway Ex. l.H contains excerpts of key language from all the PSAs at issue.
12 "Section 7.01 of the PSAs identifies several types of failures by the servicer that may give rise to such an
event. The other PSAs contain substantially similar provisions. See [Doc. 114-9, Attaway] Exhibit H §
VIII." (PSAC 'JI 88; see also id. 'lI'lI 410-19 (specific allegations of EODs) .)
10
18
any defects as well as providing notice of and enforcing repurchase rights with respect to
mortgages that are found to be in breach of representations and warranties ("R&Ws"),
and (2) post-EOD obligations where, after Deutsche Bank has notice of an EOD, it is
required to provide notice to all certificateholders and act prudently in managing the
EOD. (See id. <_![<_![ 64-94.)
Crucially, NCUA alleges that Deutsche Bank had notice of problems related to the
mortgages held in the trust. For defects in the mortgage files, the PSAC points to the
trustee's usual reports which would have flagged issues as well as "numerous reports,
litigation, and investigations [that] have revealed the widespread misconduct of servicers
to the trusts at issue here to cover-up the systemic failure of depositors and sponsors to
properly assign the underlying mortgage loans to issuing trusts, including through the
use of robo-signers." (Id. <_j[<_j[ 105-06.) With respect to notice of breaches of R&Ws, the
PSAC alleges that Deutsche Bank would have had notice through various internal
procedures it likely would have conducted as trustee as well as:
(A) general reports concerning originators' systematic abandonment of their
underwriting standards and reports concerning the sponsors' pervasive disregard
of prudent securitization standards (<_j[<_j[ 112-126); (B) specific reports concerning
the originators of loans in the trusts abandoning their underwriting standards and
sponsors of the securitizations failing to follow prudent practices (<_j[<_j[ 127-365); (C)
the high number of borrower delinquencies and defaults on mortgages in the
trusts' loan pools and enormous losses to the trusts (<_j[<_j[ 366-375); (D) the collapse
of the certificates' credit ratings from high, investment-grade ratings when
purchased to much lower ratings, including numerous "junk" ratings (<_![<_![ 376379); and (E) Deutsche Bank's settlement with the Department of Justice
concerning its securitization of loans originated by systematic abandonment of
loan originator underwriting guidelines, together with the numerous lawsuits
brought against Defendant and its affiliates alleging the systematic abandonment
of originator underwriting guidelines (<_j[<_j[ 380-409).
(Id. <_j[<_j[ 110-11.). With respect to knowledge of EODs, NCUA alleges that Deutsche Bank
knew of widespread master servicer defaults (which trigger EODs) through numerous
public lawsuits, investigations, and reports as well as "servicing reports and monthly
remittance reports" defendant would have received. (Id. <_j[<_j[ 470-80.)
i)
NCUA Has Plausibly Alleged That Deutsche Bank Had Notice of Pre-EOD
Breaches of R&Ws and of EODs.
One of Deutsche Bank's key arguments is that it had no knowledge or notice of
any pre-EOD breaches of R&Ws or of EODs. It asserts that it was under no general
obligation to conduct any investigations under the PSAs and could, prior to an EOD,
19
simply take representations made to it about the mortgages at face value. (See Def.' s
Mem. at 19-20.) Deutsche Bank also contends that NCUA fails to allege that Deutsche
Bank had knowledge of any EODs. (Id. at 24.)
At least 13 decisions by 10 judges in the Southern District of New York have
allowed similar breach of contract claims against RMBS trustees to proceed; no decision
is to the contrary. See, e.g., Royal Park Investments SA/NV Individually & on Behalf of all
Others Similarly Situated v. Bank of New York Mellon as Tr., No. l:14-cv-6502, 2016 WL
899320, at *5 (S.D.N.Y. Mar. 2, 2016) ("join[ing] the chorus of judges in this district" in
finding that the plaintiff met its Rule 8 burden at the motion to dismiss stage). This Court
agrees with those decisions. Deutsche Bank's knowledge (both of pre-EOD breaches of
R&Ws and of the EODs themselves) and breach is sufficiently pled in the PSAC to survive
a motion to dismiss. See Wells Fargo I, 247 F. Supp. 3d at 389-90 ("It is true that to prevail
ultimately on the breach of contract claim, a plaintiff does have to demonstrate breach on
a loan-by-loan and trust-by-trust basis ... [b ]ut this is not a pleading requirement, because
at the pleading stage such information is uniquely in the possession of defendants.")
(internal citations and quotation marks omitted) (quoting other decisions in this district);
Royal Park Investments SA/NV v. Deutsche Bank Nat'l Tr. Co., No. 14-cv-4394, 2016 WL
439020, at *6 (S.D.N.Y. Feb. 3, 2016) ("Plaintiff's detailed allegations of high default rates,
staggering economic losses, and widespread investigation into RMBS securitization are
sufficient to allow the court to draw the reasonable inference that R&Ws were breached
on a loan-by-loan basis.") (internal citations and quotation marks omitted) (quoting other
decisions in this district) .
Deutsche Bank acknowledges the unfavorable case law in the Southern District of
New York, but argues that an intervening decision from the New York State Supreme
Court, Appellate Division, First Department demonstrates that New York law has moved
in its favor. (Def.'s Mem. at 20-24.)
In Commerce Bank v. Bank of New York Mellon, 141 A.D.3d 413 (1st Dept. 2016), the
First Department affirmed the trial court's dismissal in part of the plaintiff's breach of
contract claims against an RMBS trustee in which the plaintiff alleged that the defendant
trustee did not give notice of breaches of R&Ws and of occurrences of EODs. Despite
agreeing with the Southern District of New York judges that allegations do not need to
be made on a trust-by-trust basis at the motion to dismiss stage, the First Department still
found that the relevant claims were to be dismissed because the plaintiff failed to
sufficiently allege that the defendant trustee had knowledge of the relevant events. Id. at
414-15. The Commerce Bank court added that the defendant trustee had no duty to
investigate whether these events indeed did occur, i.e. it had no "duty to 'nose to the
source."' Id. at 415. Deutsche Bank claims that this proves that "New York State Courts
20
view an RMBS trustee's duties under a PSA much more narrowly than their Federal
counterparts." (Def.'s Mem. at 21.)
While Commerce Bank throws a wrench into the uniform authority in this district,
the Court finds that the three-page opinion is simply not enough and not sufficiently
specific to overcome the weight and reasoning of the aforementioned authority. In fact,
Commerce Bank does not purport to change the law and cites the Southern District of New
York RMBS cases favorably. "Decisions of New York's intermediate appellate courts are
helpful indicators of how the [New York] Court of Appeals would decide, but we are not
strictly bound by decisions of the Appellate Division, particularly when we have
persuasive data that the Court of Appeals would decide otherwise." Reddington v. Staten
Island Univ. Hosp., 511 F.3d 126, 133 (2d Cir. 2007) (internal quotation marks omitted).
Here, the ambiguity in Commerce Bank and the weight of authority in plaintiff's favor
amounts to the requisite "persuasive data." See Wells Fargo I, 247 F. Supp. 3d at 392
(Commerce Bank was "not sufficiently specific for this Court to determine the precise
manner in which the First Department concluded that the plaintiffs therein had not
alleged the defendant's discovery."); Commerzbank AG v. Bank of New York Mellon, No. 15cv-10029, 2017 WL 1157278, at *5 (S.D.N.Y. Mar. 21, 2017) ("Commerzbank/BNYM")
(distinguishing Commerce Bank and allowing RMBS breach of contract claims to proceed).
Additionally, looking at the complaint at issue in Commerce Bank, it is fair to say
that NCUA' s pleading is considerably more robust than the Commerce Bank complaint.
The Commerce Bank complaint alleged the defendant's knowledge of R&W breaches
through various external events and the defendant's involvement in the RMBS market in
the same way NCUA does (see Commerce Bank Compl., Doc. 119-12, Garbutt Ex. 121[ 167),
but NCUA certainly does so in more length and detail. Regarding the defendant in
Commerce Bank's knowledge of EODs, the focus in the complaint was on a letter from a
nonparty that the plaintiff alleged constituted "written notice" of an EOD (see Commerce
Bank Compl. 1[1[ 172-76) - a proposition that the Commerce Bank court rejected. Commerce
Bank, 141 A.D.3d at 414-15. Here, NCUA has pled more avenues through which Deutsche
Bank likely received notice of EODs. In the end, "[Commerce Bank] did not explain what
precisely it found lacking [in the pleadings]. This Court cannot therefore determine
precisely where the Commerce Bank court would draw a line; the insufficiency of the
allegations in that case do not preclude the Court from finding the far more robust
allegations in this case to be sufficient." Wells Fargo I, 247 F. Supp. 3d at 392.
Similar reasoning applies to Commerce Bank's assertion that a trustee has no duty
to "nose to the source." It is true that there is no duty to investigate, just as Deutsche
Bank urges. However, once Deutsche Bank does receive notice of these events, it is
required to take action under the PSAs, as established above. And NCUA has plausibly
pled that Deutsche Bank did indeed receive notice and should have thus acted. There is
21
therefore no inconsistency. See Wells Fargo I, 247 F. Supp. 3d at 393 ("In Commerce Bank,
there was no notice, no discovery, and therefore no duty to 'nose to the source.' This is
consistent with the law in this Circuit; it does not undermine it."); Commerzbank AG v.
U.S. Bank Nat'l Ass'n., 277 F. Supp. 3d 483,492 (S.D.N.Y. 2017) ("Commerzbank/U.S. Bank")
("[Commerce Bank] sensibly held that an RMBS trustee does not have a duty to monitor or
a duty to nose to the source of improper servicing if there is no reason to know about it.
But where, as here, the Complaint alleges a number of circumstances plausibly raising an
inference that the Trustees knew, or should have known, of a breach, the duty to monitor
arises.") (internal quotation marks omitted).
Therefore, the Court rejects Deutsche Bank's argument that its knowledge of preEOD breaches of R&Ws and of EODs was insufficiently pled, consistent with the
overwhelming authority in this district.
However, Deutsche Bank makes additional arguments to dismiss NCUA' s breach
of contract claim. Those arguments focus separately on Deutsche Bank's (1) post-EOD
obligations and (2) pre-EOD obligations - both of which NCUA alleges Deutsche Bank
breached. The Court will now turn to those arguments.
ii)
Deutsche Bank's Remaining Challenges to NCUA's Post-EOD Contract
Claims Are Meritless.
Deutsche Bank argues that not only was its knowledge of EODs insufficiently pled
(as discussed above), but also that there was never any EOD at all because the servicers
never received notice of any breaches of the PSAs - a requirement under the PSAs for an
EOD to occur. (Def.'s Mem. at 24-25; see PSA § 7.01, Doc. 114-9, Attaway Ex. l.H, Section
VIII.) Deutsche Bank cites further recent decisions from the First Department in support.
In Fixed Income Shares: Series M v. Citibank, N.A., 157 A.D.3d 541 (1st Dept. 2018)
and Blackrock Balanced Capital Portfolio (FI) v. U.S. Bank Nat'l Ass 'n, 165 A.D.3d 526 (1st
Dept. 2018), the First Department limited the application of the "prevention doctrine."
The "prevention doctrine" stands for the proposition that a party cannot argue that its
performance under a contract has not been triggered by a condition precedent, when the
party itself prevented the triggering of that condition precedent. Those cases held that,
where a defendant trustee in the RMBS context argues that its EOD obligations were not
triggered because the trustee never gave notice of breaches - and providing notice of
breaches is a condition precedent to triggering the trustee's EOD obligations - the
plaintiffs could not counterargue that the prevention doctrine prevents the defendant
from benefitting from not providing notice. The First Department reasoned that the
prevention doctrine "is not applicable because it requires the party's active conduct
preventing or hindering the fulfillment of the condition . . . . A defendant's failure to send
a notice to cure to the servicers is not active conduct within the meaning of the prevention
22
doctrine. " Blackrock Balanced Capital Portfolio (FI), 165 A.D.3d at 527 (citing Fixed Income
Shares) (internal citations and quotation marks omitted).
Prior to the aforementioned First Department decisions, "several courts in this
District have applied the prevention doctrine" to situations just like the one here, where
defendant trustees claim that no EOD occurred because the servicers never received
notices to cure from the trustee. Commerzbank/U.S. Bank, 277 F. Supp. 3d at 491 (citing
cases).
On this issue as well, the Court finds the authority in this district to be better
reasoned than the short, vague First Department decisions cited by Deutsche Bank. The
First Department decisions do not explain why failure to send notice is not "active
conduct" when such failure could plausibly have been intentional or due to active
frustration by the trustee nor did the decisions explain why "active conduct" is required
to apply the logic of the prevention doctrine. Because the First Department never
expounded on its "active conduct" distinction nor explained why an RMBS trustee
should be able to avoid alleged liability for breach of contract on a technicality that came
about through its own alleged wrongdoing, the Court is persuaded that "the [New York]
Court of Appeals would decide otherwise." Reddington, 511 F.3d at 133. NCUA has
plausibly alleged that EODs did occur, and the Court will not dismiss its breach of
contract claims on grounds that they did not. 13
Deutsche Bank makes a separate, additional argument to dismiss post-EOD claims
on the grounds that NCUA only alleged that Deutsche Bank did not provide notice of
"events that could ripen into EODs" as opposed to actual EODs, which is one ground
that Commerce Bank upheld the trial court's dismissal of post-EOD claims. (Def.'s Mem.
at 25-26.) This argument can be dispensed with for the same reason that the lack of
knowledge argument can be - NCUA has plausibly alleged at this stage that the breaches
by the servicers were indeed EODs and not just events that could ripen into EODs.
iii)
Deutsche Bank's Remaining Challenges to NCUA 's Pre-EOD Contract
Claims Are Meritless.
Deutsche Bank argu es that Baka/ v. U.S. Bank N at 'l Ass'n, 747 F. App 'x 32 (2d Cir. 2019) (summary
order), decided after the briefing in this case was completed and about which the parties exchanged postbriefing letters (see Docs. 141, 143, 147), supports its position. There, the Second Circuit ruled that an
EOD did not occur under the PSA at issue. In addition to other reasons specific to the facts there, the
panel found that because the plaintiff did not allege that the trustee or anyone else provided notice to the
master servicer, an event of default did not occur under the PSA. 747 F. App'x at 35. That, however, was
an alternative ground for its ruling that an EOD had not occurred. The Court will still apply the
prevention doctrine here. In addition to the fact that the Baka/ decision was made in a summary order
and that the portion cited by Deutsche Bank was not its holding, the Baka/ panel did not mention the
prevention doctrine nor engage with the aforementioned First Department cases.
13
23
In addition to taking action upon knowledge of breaches of R&Ws, another preEOD obligation NCUA alleges Deutsche Bank breached relates to the mortgage file. First,
NCUA alleges that Deutsche Bank had a duty to take physical possession of the mortgage
file, review it, and certify its completeness. (PSAC 111164-69.) Second, NCUA claims that
Deutsche Bank was required to, upon review of the file, notify the relevant parties of any
defects and, if required, enforce any repurchase rights with respect to defective files. (Id.
1111 70-73.) Deutsche Bank makes two counterarguments: (1) it had no duty to take
possession of completed loan files and (2) the six-year statute of limitations would have
already run on these claims. (Def.'s Mem. at 26-28.)
With respect to Deutsche Bank's first argument, although it cites the district court
decision in Bakal v. U.S. Bank Nat'l Ass 'n, No. 15-cv-6976, 2018 WL 1726053 (S.D.N.Y. Apr.
2, 2018), aff'd, 747 F. App'x 32 (2d Cir. 2019), where the court ruled that under the PSA at
issue there, the defendant trustee was not the entity responsible for reviewing and
physically taking possession of the mortgage file, 2018 WL 1726053, at *10, Bakal did not
address NCUA's separate allegations related to Deutsche Bank's failure to enforce
repurchase rights. Those allegations are clearly pled with the requisite specificity and
plausibility to survive a motion to dismiss. With respect to the portion of NCUA' s
mortgage file allegations related to Deutsche Bank's duty to review and physically take
possession of the file, because there are numerous trusts at issue here, plaintiff is not
required to "demonstrate breach on a loan-by-loan and trust-by-trust basis at the motion
to dismiss stage. Wells Fargo I, 247 F. Supp. 3d at 389 (citing other cases in this district).
Accordingly, the Court will not dismiss NCUA's pre-EOD claims related to the mortgage
file .
11
Turning to Deutsche Bank's second assertion that these mortgage file defect claims
are time-barred, Deutsche Bank urges that an "exception report relating to any defects
would have been due for the latest-formed trust by January 8, 2008, thus making the sixyear statute of limitations expire on January 8, 2014 at the latest. (Def.'s Mem. at 28; see
Doc. 119-13, Garbutt Ex. 13.) The original complaint in this case was filed on November
7, 2014. Deutsche Bank cites Phoenix Light SF Ltd. v. Deutsche Bank Nat'l Tr. Co., 172 F.
Supp. 3d 700, 709 (S.D.N.Y. 2016) ("Phoenix Light!DB where the court held that "claims
for document delivery failures" were time-barred, whereas other breach of contract
claims were not. However, because, as discussed above, the Court finds that NCUA's
Extender Statute applies, claims did not start accruing until March 20, 2009. These claims
are thus also timely. By contrast, the plaintiff in Phoenix Light/DB did not receive the
benefit of any extender statute. 14
11
11
),
14
The Court swiftly addresses two other arguments put forward by Deutsche Bank. First, Deutsche Bank
argues that NCUA's allegations that Deutsche Bank did not comply with its reporting requirements
under Regulation AB (specifically 17 C.F.R. § 229 .1121) cannot form a claim of breach of contract. (Def.'s
24
3.
Deutsche Bank's Motion to Dismiss NCUA's Tort Claims is Granted.
NCUA brings two tort claims in the PSAC: (1) negligence and gross negligence
(Count Two, <_I[<_[ 534-40) and (2) breach of fiduciary duty (Count Three, <_I[<_[ 541-46). The
negligence claim sterns from Deutsche Bank's alleged duty to "administer the trusts
without negligence" which it purportedly violated though "fail[ure] to avoid conflicts of
interest" and thus "protect the interests of the certificateholders," specifically by not "(1)
acting in good faith; (2) providing notice to certificateholders when appropriate ... and (3)
acting with undivided loyalty to certificateholders." (Id. <_I[<_[ 537-39.) The breach of
fiduciary duty claim sterns from Deutsche Bank's alleged fiduciary duty "following
Events of Default to act in good faith, with due care and undivided loyalty, and without
conflicts of interest, when performing the obligations set forth in the PSAs," which NCUA
alleges that Deutsche Bank failed to do. (Id. <_I[<_[ 544-45.)
Deutsche Bank argues that these tort claims should be dismissed on four grounds:
(1) they are barred by the economic loss doctrine; (2) they are duplicative of plaintiff's
contract claim; (3) the fiduciary duty claim fails because there was no fiduciary duty and
the allegations of conflicts of interest are conclusory; and (4) the negligence claim fails
because Deutsche Bank's duties are limited under the PSAs. (Def.' s Mern. at 36-40.)
Because the Court grants the motion to dismiss plaintiff's tort claims on the first two
grounds, it will not address the latter two.
i)
NCUA 's Tort Claims Are Dismissed Pursuant to the Economic Loss
Doctrine.
Under New York's economic loss doctrine, "[a] plaintiff cannot seek damages by
bringing a tort claim when the injury alleged is primarily the result of economic injury
for which a breach of contract claim is available." Phoenix Light/DB, 172 F. Supp. 3d at
718-19 (citing BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 949 F. Supp. 2d 486, 505
(S.D.N.Y. 2013)). "Plaintiffs' allegations that Defendant breached duties independent of
its contracts do not, themselves, 'allow evasion of the economic loss rule, which presents
Mem. at 28-29.) NCUA responds that it is not in fact raising Deutsche Bank's alleged violation of
Regulation AB as an independent breach of contract claim. (Pl.'s Reply Mem. at 19-20.) The argument is
therefore moot. Second, in a post-briefing letter to this Court, Deutsche Bank submitted "supplemental
authority from the Ohio Court of Appeals" in Western & Southern Life Insurance Co. v. Bank of New York
Mellon, 2019 WL 495581 (Ohio Ct. App . Feb. 8, 2019). (Doc. 150.) In that letter, Deutsche Bank attempted
to raise a new argument for the first time with respect to Deutsche Bank's pre-EOD obligations as it
pertains to breaches of R&Ws, arguing that the language in the PSAs for some of the trusts do not place
any obligation on the trustee to take any action to enforce R&W breaches even upon notice. (Id.)
However, the Court rejects this argument for being raised for the first time in a post-briefing letter. See
United States v. Strock, No. 15-cv-0887, 2018 WL 647471, at *5 (W.D.N.Y. Jan. 31, 2018). This is especially so
when the impetus for the new argument is a nonbinding Ohio intermediate appellate decision affirming a
post-trial decision by the lower court.
25
a second, distinct barrier' to tort claims stemming from contractual relationships." Wells
Fargo I, 247 F. Supp. 3d at 399 (quoting Royal Park Investments SA/NV v. HSBC Bank USA,
Nat. Ass'n, 109 F. Supp. 3d 587, 599 (S.D.N.Y. 2015)). "The economic-loss rule provides
that' a contracting party seeking only a benefit of the bargain recovery may not sue in tort
notwithstanding the use of familiar tort language in its pleadings."' Wells Fargo I, 247 F.
Supp. 3d at 399 (quoting Phoenix Light SF Ltd. v. U.S. Bank Nat'l Ass'n, No. 14-cv-10116,
2016 WL 1169515, at *9 (S.D.N.Y. Mar. 22, 2016)). See also Ambac Assurance Corp. v. U.S.
Bank Nat'l Ass'n, 328 F. Supp. 3d 141, 157-60 (S.D.N.Y. 2018) (providing insight by
distinguishing between New York's "economic loss rule," which is likely only applicable
in the products-liability context, with its "economic loss doctrine," applicable here).
In the very same scenario as the one before the Court, where tort claims of
negligence and/or breach of fiduciary duty are asserted simultaneously with breach of
contract claims against RMBS trustees, courts have split on whether the economic loss
doctrine applies. Compare Blackrock Core Bond Portfolio v. U.S. Bank Nat'l Ass'n, 165 F.
Supp. 3d 80, 106 (S.D.N.Y. 2016) and Triaxx Prime CDO 2006-1, Ltd. v. Bank of New York
Mellon, No. 16-cv-1597, 2018 WL 1417850, at *6-7 (S.D.N.Y. Mar. 8, 2018) (Buchwald,
J.), aff'd sub nom. Triaxx Prime CDO 2006-1, Ltd. v. U.S. Bank Nat'l Ass'n, 741 F. App'x 857
(2d Cir. 2018) (summary order) (dismissing tort claims as barred by the economic loss
doctrine) with Phoenix Light/DB, 172 F. Supp. 3d at 719 and Commerzbank/U.S. Bank, 277 F.
Supp. 3d at 496-97 (allowing tort claims to proceed).
This Court agrees with those judges who have found the economic loss doctrine
to apply and have dismissed tort claims against RMBS trustees. NCUA asserts that it
pled "a legal duty separate from the contract claim" (Pl.'s Reply Mem. at 23 (emphasis in
original)), but even if true, the economic loss doctrine "presents a second, distinct barrier"
to the tort claims. Wells Fargo I, 247 F. Supp. 3d at 399. Even where a claim "may arise
from common law duties and not from the PSA, 'the injury' and 'the manner in which
the injury occurred and the damages sought persuade us that plaintiff's remedy lies in
the enforcement of contract obligations,' and are barred by the economic loss doctrine."
U.S. Bank II, 2016 WL 796850, at *11 (quoting Bellevue S. Associates v. HRH Const. Corp., 78
N.Y.2d 282, 293 (1991)). Here too, the basis for plaintiff's damages sound in Deutsche
Bank's failures to take actions under the PSAs, for which the asserted contractual
remedies would be appropriate. In addition to the aforementioned district court
decisions, Deutsche Bank's position that the economic loss doctrine applies is further
bolstered by (1) the Second Circuit's affirmance of Judge Buchwald's opinion in Triaxx,
741 F. App'x 857 (2d Cir. 2018) (summary order), and (2) the First Department's decision
in Blackrock Balanced Capital Portfolio (FI) affirming the New York Supreme Court's
dismissal of the plaintiff's tort claims against the RMBS trustee, finding that "the court
correctly determined that the tort claims are barred by the economic loss doctrine." 165
A.D.3d at 528.
26
There is also reason to doubt that NCUA has actually asserted any separate duty
owed by Deutsche Bank; although the PSAC contains the proper words to make out an
independent tort claim, the pleading is quite hollow on substance. The fact that Deutsche
Bank's alleged duty stems from the PSAs is revealed by the glaring oxymoron nestled
within the PSAC' s negligence allegations: "Defendant owed the certificateholders,
including Plaintiffs, extracontractual duties under the PSAs." (PSAC
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